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TMI Blog2013 (12) TMI 743X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of Tamil Nadu General Sales Tax Act, 1959, any transaction representing service/labour and other like charges falls out side ambit and scope of taxation." 2.The petitioner in both the Tax cases, is the same assessee, a company engaged in the business of operating supermarket under the name and style of VITAN A/C Supermarket . T.C.(R) No.29 of 2011 pertains to the assessment year 2002-03 and T.C.(R).No.30 of 2011 pertains to the assessment year 2004-05 under the Tamil Nadu General Sales Tax Act, 1959 (TNGST Act). Facts:- 3.For the assessment year 2002-03, the petitioner was assessed on a total and taxable turnover of Rs. 84,68,410/- and Rs. 12,07,663/- respectively. The petitioner filed an appeal before the Appellate Assistant Commissioner (CT), who remanded the case back to the Assessing Officer. On such remand, the Assessing Officer determined the taxable, resale and total turnover at Rs. 5,69,063/-, Rs. 11,62,213/- and Rs. 17,31,276/- respectively and levied tax at 4% on the turnover relating to the Franchise Commission to the tune of Rs. 5,23,613/-. Aggrieved by such order, the petitioner filed appeal before the First Appellate Authority, who partly dismissed the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the franchisee during the tenure of the agreement. The duration of the agreement was for ten years expiring on 27.09.2012, unless extended further. In terms of clause 1(a), the Franchisee was given exclusive right to operate the supermarket in the said location. Clause 4 of the agreement deals with payment and the Franchisee was required to pay a refundable deposit of Rs. 7,00,000/- and "fee" of one percent on the total sale for the month from zero to 14 lakhs and thereafter, at 1.5% on the total sale for the month, the payment to commence from the calendar month when the Franchisee will reach a sale of Rs. 9,00,000/-. Apart from the above payment, the Franchisee was required to bear all running expenses like monthly expense, energy and water charges, staff salary, security, maintenance of equipment and other direct expenses for the running of the stores. In sub-clause (d) of the Clause IV of the agreement, the Franchisee was to remit monthly rent of Rs. 25,000/- directly to the owner of the premises. In terms of Clause XI, the Franchisee was required to do all accounting and billing as per the formats of the petitioner. Clause XIV, deals with termination of the agreement. 6.The p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service under the agreement and there is no sale of goods in any form. It is further submitted that the fee received by the petitioner, which is a franchisee fee are not goods within the meaning of TNGST Act and the Tribunal committed serious error in holding that there was transfer of trade mark and goodwill without understanding the scope of various clauses/conditions in the agreement. The learned counsel further submitted that actionable claims are not includable in the definition of goods for the purpose of Sales Tax Act and therefore, the question of levying sales tax does not arise. In support of such contention reliance was placed on the decision of the Hon'ble Supreme Court in the case of Sunrise Associates vs. Government of NCT of Delhi & Ors., reported in 2006 (145) STC 576 (SC). By placing reliance on the decision of the Hon'ble Supreme Court in 20th Century Finance Corporation Limited vs. State of Maharastra reported in 2000 (119) STC 182 (SC), it is submitted that the transaction made by the petitioner will not fall within the scope of deemed sale as explained in the said judgment and therefore, no sales tax is leviable. Reliance was also placed on the decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the petitioner/assessee contended that the fee received is an actionable claim and stands excluded from the definition of "goods" as defined under Section 2(j) of the Act and no sales-tax is leviable. In support of his contention, reliance was placed on the decision of the Hon'ble Supreme Court in the case of Sunrise Associates (supra) which decision was further examined by the Hon'ble Supreme Court in the case of M/s.Yasha Overseas (supra). 13.The learned counsel appearing for the petitioner by referring to the decision of the Hon'ble Supreme Court in the case of BSNL and another Vs.Union of India and others reported in (2006-TIOL-15-SC-CT-LB) submitted that the agreement entered into by the petitioner is a franchise agreement and the right given to the franchisee is not transfer of right to use goods and it does not satisfy any one of the attributes as culled out by the Hon'ble Supreme Court to constitute a transfer of right to use goods. 14.The learned counsel appearing for the petitioner by referring to the decision of the Division Bench of the Kerala High Court in the case of Malabar Gold Private Limited (supra) contended that under the agreement the trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the prize, depending on chance. The second right was held to be a chose in action and therefore, not 'goods' for the purposes of levy of sales tax while the first right was a transfer of a beneficial interest in moveable goods and was a sale within the meaning of Article 366 (29-A)(d) of the Constitution and consequently, subject to sales tax. 19.The reference to the Constitution Bench arose since a decision was rendered by the High Court of Delhi in Haryana State Lotteries Vs.Government of NCT reported in 1998(46) DRJ 397 which followed the decision in the case of H.Anraj (supra) and held lottery tickets were goods and are liable to sales tax under the Delhi Sales Tax Act, 1975. 20.The decision of the High Court of Delhi was challenged before the Hon'ble Supreme Court and an order of reference was made on a prima facie view that there was no good reason to split a sale of a lottery ticket into two separate rights and therefore, the decision in the case of H.Anraj(supra) required reconsideration. Though there was no specific reference as regards the correctness of the decision in the case of Vikas Sales Corporation since the Hon'ble Supreme Court in the case ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax has been uniformly held to mean all kinds of movable property and the word 'property' may denote the nature of the interest in goods and when used in this sense means title or ownership in a thing. 23.Referring to dictionary of Commercial Law by A.H.Hudson, wherein it has been pointed out that the property means subject matter of ownership and the same word in the context of a 'sale', means, the transfer of ownership in goods. It was held that an 'actionable claim' is movable property and 'goods' in the wider sense of the term but a sale of an actionable claim would not be subject to the sales tax laws. It was further held that every claim is not an actionable claim, it must be a claim either to a debt or to a beneficial interest in movable property the beneficial interest is not the movable property itself, and may be existent, accruing conditional, or contingent and the movable property in which such beneficial interest is claimed, must not be in the possession of the claimant and, an actionable claim is therefore, an incorporeal right and that goods for the purpose of sales tax may be intangible and incorporeal as has been held in Tata Consul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve. II. Duration of Lease: a) This agreement will be in force for a period of 10 (Ten) years and expires on 27.09.2012 unless extended further. b) The lease for Chetpet Vitan stores is upto year-2004 and extended by another 5 years, however the Franchisee lease is subject to continuity of lease by landlord, and will expire 15 days before the handing over date. III. Services by VITAN: 1. Marketing exercise as required by the franchisee. 2. Joint promotions & schemes along with other willing franchisees. 3. Quality, price sourcing guidance. 4. Manpower selection. 5. Management help. IV. Payments:- a) Franchisee will pay a refundable deposit to the Franchiser totaling Rs. 7 lacs (Rupees Seven lakhs). This 7 lacs (Rupees Seven Lakhs) have been paid. This deposit will not bear any interest. b) Franchisee agrees to pay to VITAN Franchisee fee as under: Franchisee fees payable to Vitan (Franchisor) will commence from the calender month when Franchisee will reach a sale of Rs. 900000/-, Franchisee fee will be 1. 1% on total sale for the month from 0 to 14 lacs. 2. On reaching a monthly sale of 14 lacs the Franchisee fees will be increased to 1.5% on the total sale for the mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titute a default under this Agreement. If Franchisee shall misuse the VITAN system or Licensed Right of any other Names, marks, systems, insignia, symbols or rights provided by VITAN to Franchisee or otherwise materially impure the goodwill associated herewith are VITAN's right therein or if Franchises shall use at the Super Market any names, marks, systems, insignia or symbols not authorised by VITAN. If Franchisee shall fail to remit any payment when due to VITAN. If Franchisee shall fail to submit to VITAN the financial or other information required under this Agreement. If Franchisee fails to obtain VITAN's prior written approval of consent as expressly required by this Agreement. If Franchisee defaults in the performance of any other points under this Agreement. If Franchisee fails to operate the Supermarket in accordance with VITAN's procedures or fail to use materials which confirm tot he specification and standard of VITAN. If Franchisee become insolvent by reason of inability to repay its debts or shall be adjudged a bankrupt or convicted under any law. Upon occurrence of any of the event set forth in any other rights or remedies contained in this Agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of Sunrise Associates (supra) does not lend any support to the case of the petitioner. 27.Similarly, the decision in the case of M/s.Yasha Overseas also which considered the judgment in Vikas Sales Corporation observed that the decision has not been over ruled by the decision of the Constitution Bench in Sunrise Associates and pointed out that DEPB has an intrinsic value that makes it a market commodity and therefore, DEPB like REP licence qualifies as 'goods' within the meaning of the sales tax laws and its sale is exigible to tax. We find that this decision is of no assistance to the case of the petitioner. 28.Learned counsel appearing for the petitioner submitted that the franchise fee received by the petitioner is for the use of the trade mark along with store and the stocks and as held by the Division Bench of the Kerala High Court, since the petitioner retains the right, effective control and possession, it is not a case of transfer of possession to the exclusion of the petitioner and therefore, would not attract levy of sales tax. The agreement which was subject matter of consideration before the Kerala High Court was a franchise agreement under which every fra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight given in respect of a particular store to any other party. Thus, all the attributes to constitute transfer of right to use the goods have been fulfilled and therefore, we have no hesitation to hold that the tests laid down by the Hon'ble Supreme Court in BSNL's stands fully satisfied and the right given by the petitioner is undoubtedly a transfer of right to use incorporeal or intangible goods and therefore, exigible to sales-tax. 30.In S.P.S Jayam and Co., (supra), a Division Bench of this Court considered an identical question as in the case on hand. In the said decision, the assessee allowed an agency to use their trade mark and the receipts were shown in the books of accounts as royalty. In the original assessment, the turn over relating to the transaction was exempted accepting the claim that it was only royalty. Subsequently, the assessing authority took the view that the consideration was received for transfer of right to use the trade mark and hence, the same is taxable. Notice was issued to the assessee who failed to respond and the Assessing Authority proceeded on the basis that there was transfer in incorporeal goods which is taxable under the Sales Tax Act ..... X X X X Extracts X X X X X X X X Extracts X X X X
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